The US markets have been remarkably resilient of late, despite the constant bad tidings from Europe. And August is traditionally a pretty good month for Wall Street. Going back to the start of the 20th century, the Dow Jones Industrial Average has tended to go up around 71 per cent of the time in the eighth month, with an average gain of 1 per cent. Failing major intervention in the US or Europe, however, I reckon the most that August can bring is further choppy gains.
Choppy Dow
What about our own market? The FTSE 100 has a pretty decent track record in August too, even though it has only existed for a quarter of the period that the Dow has been around. The UK large-cap index has gone up around two-thirds of the time next month, also achieving an average gain of 1 per cent. Delving back deeper into British stock-market history produces a similar result. Since 1935, the FT 30 index has risen by 1.35 per cent in the eight month. Still, I prefer the US markets for potential bullish trades, given the look of the charts.
FTSE's weak uptrend
Other international stock markets show rather less of a seasonal tendency in August, by contrast. Germany's DAX 30 has gone up around half the time, with an average loss is of 0.1 per cent. Admittedly, that performance has been distorted by a few absolutely shocking months. But even its median gain has been a mere 0.3 per cent. As it happens, though, I am currently keener on the DAX than I am on the UK market. A very similar lack of seasonality is in evidence for Japan’s Nikkei.
Gold: flatlining
In each of the last three summers, a significant rally in precious metals has got under way, but in the month of July. My prediction has been that 2012 would break the pattern and so it has proved. Both gold and silver remain not far from their multi-month lows and show no signs of imminent revival. History suggests little seasonal stimulus for them in August. Whether gold rises in the eighth month is a coin-flip. Its average gain is a flat 0.7 per cent.
By contrast, silver shows more of a seasonal tendency in August: the semi-precious metal has often weakened. The average drop has been 0.6 per cent, while it has gone up in fewer than four years out of ten. Come the next dose of quantitative easing in the US, I expect great things from this commodity, and see it returning to $50/oz - and more.
History suggested that July could see Brent crude oil strengthen - and strengthen it has done. The price of the black stuff was up by some 13.5 per cent at one point this month, which is admittedly way ahead of its past average. The calendar gives few clues about Brent’s likely direction in August, however. Gains and losses have occurred with equal frequency. You can watch me discuss these charts in more detail in this short video:
